Federal Court Nixes SD Employee’s Attempted Use of Dual Capacity Doctrine
A products liability/strict liability and negligence action filed by an employee against an employer based upon the employer’s earlier merger with the firm that had manufactured the allegedly defective product is barred by the exclusive remedy provisions of North Dakota’s workers’ compensation laws in spite of the fact that, under North Dakota law, the surviving corporation in a merger assumes all liabilities of the non-surviving corporation, held a federal district court in Scott v. Hydra-Walk, Inc., 2019 U.S. Dist. LEXIS 158782 (D. N.D., Sept. 18, 2019). Quoting liberally from Larson’s Workers’ Compensation Law, § 113.01, the federal court observed that North Dakota courts had allowed similar suits to proceed against an employer on so-called “dual capacity” or “dual persona” grounds on only one prior occasion and that the case law supporting that decision had been severely criticized in Larson. The district court concluded that the North Dakota Supreme Court would not likely apply the dual capacity doctrine given the facts in the case.
Background
Hydra-Walk, Inc. (“Hydra-Walk”) designed and manufactured the Hydra-Walk pipe-handling system that is sometimes utilized by firms in the oil and gas industry to pick up and lay down pipe. As a result of a 2008 purchase agreement, Key Energy Services, Inc. (“Key Energy”) and Hydra-Walk merged, with Key Energy as the surviving entity. Following the merger, Key Energy became the owner of the equipment and patents it acquired from Hydra-Walk. Following the merger, the Hydra-Walk system was no longer manufactured. Key Energy continues to provide Hydra-Walk pipe-handling services, however, by renting the Hydra-Walk units and supplying the employees necessary to operate them for use on Key Energy drilling rigs as well as competitors’ drilling rigs.
On June 12, 2013, the plaintiff (“Scott”), who was employed by Key Energy, suffered injuries allegedly caused by the Hydra-Walk system. The Hydra-Walk unit that injured Scott was designed, manufactured, and sold or leased by Hydra-Walk, prior to the 2008 merger of Key Energy and Hydra-Walk. At no time did Key Energy design or manufacture the Hydra-Walk system.
Following his injury, Scott accepted workers’ compensation benefits totaling more than $341,000. He filed the instant civil action in federal court against Key Energy, contending that as the surviving company in the merger, it assumed all the liabilities of Hydra-Walk, including liability for damages caused by defective design or manufacturer of the Hydra-Walk systems. Key Energy moved for summary judgment.
Dual Capacity Doctrine
Citing Latendresse v. Preskey, 290 N.W.2d 267, 270 (N.D. 1980), Scott argued that while the exclusive remedy provisions of the North Dakota workers’ compensation laws ordinarily barred an employee’s civil action against the employer for injuries sustained in the course and scope of the employment, under the doctrine of dual capacity or dual persona, an employer normally shielded from tort liability might become liable in tort to its own employee if the employer occupied, in addition to its capacity as employer, a second capacity that conferred on it obligations independent of those imposed on it as employer.
The federal court noted that in Latendresse, the South Dakota court had primarily relied upon relied primarily upon a California case, Douglas v. E. & J. Gallo Winery, 69 Cal. App. 3d 103, 137 Cal. Rptr. 797 (Cal. Ct. App. 1977). In Douglas, an employee sued his employer under products liability for the injuries he suffered when the scaffolding on which he was working collapsed. The court in Douglas held the employee was permitted to maintain the action, despite the exclusive remedy rule, because the scaffolding was manufactured by the employer for sale to the general public, rather than for the employer’s sole use.
The federal court noted that in its Latendresse decision, the South Dakota court drew upon criticism for the dual capacity doctrine contained in Larson (former § 72.80) and that, in any event, the facts of the case were different from those in Douglas. Accordingly, the South Dakota court held the doctrine did not apply Latendresse.
No Tort Liability
The federal court noted further that the dual capacity doctrine had been abolished by statute in California in 1982 and that the doctrine had come under additional criticism in Larson over the years. The court added that even if it assumed that Key Energy, by taking on the obligations of Hydra-Walk through merger, sat in the place of the manufacturer, the court could find no exception to the exclusive remedy rule. Scott sustained a workplace injury, as a Hydra-Walk operator, employed by Key Energy. He did not sustain an injury as a result of his use and operation of the Hydra-Walk system as a member of the general public (a factor important in the original Douglas decision).
The court concluded further that the duties, if any, imposed upon Key Energy by its merger with Hydra-Walk were inextricably intertwined with Key Energy’s status as Scott’s employer. Key Energy had applied for and received workers’ compensation coverage for Scott, as required by statute and under the threat of criminal sanctions had it failed to do so. Refusing to extend statutory immunity to Key Energy under these circumstances, said the court, would result in an injustice. The dual capacity doctrine did not apply and the exclusive remedy rule barred the suit.